June’s declining insolvencies is the calm before the storm

In June 2020 there were a total of 732 company insolvencies in England and Wales – 262 less than May and a 50 per cent reduction on the same month last year – according to data released by The Insolvency Service.

And while the reductions may come as a surprise to some, figures recently released by the Office for National Statistics, revealed that 649,000 have lost their jobs since the start of lockdown.

CVR Global’s insolvency expert Tom Gardiner commented: “These company insolvency figures are very much the calm before the storm.

“The government has offered businesses and consumers unprecedented levels of financial support to survive the effects of the lockdown and give them the best chance of recovering – and this reduction is, in part, because of this support.

“The furlough scheme, coupled with the Coronavirus Business Interruption Loan and Bounce Back Loan, were key to preventing a wave of insolvencies, and this has been followed up now by attempts to help the economy’s recovery by trying to stimulate consumer spending – particularly in the hospitality sector with initiatives such as Eat Out to Help Out.

“Preventing insolvencies in the short-term is fine, but each sector will need its own tailored package of support from the government over the coming months to help them recover to pre-Covid levels.

“For example, some sectors may need an extended period of accessing the furlough scheme because of the market conditions they operate in.

“If the furlough scheme comes to an end in October, as is expected, we are likely to see more job losses towards the end of the year, and possibly, more insolvencies too as other forms of financial support dry up.

“Key to ensuring the survival of the thousands of SMEs that have taken out a government-backed loan will be for lenders to adopt a constructive approach should re-payment be an issue – which we elaborated on previously following news of the UK banks potentially adopting a code of conduct.

“Currently requests for formal insolvency support have not been significantly higher than before the pandemic.

“However, we have seen an increase in existing and new clients asking for support with managing a reduction in demand for their products and services, and guidance around how they can manage working capital shortages in cashflow forecasts as the economy gets moving again.

“The situation is still tough for many people with little sign of economic improvement on the horizon. That’s why anyone who starts to see problems with their business or personal finances should seek advice from a qualified advisor as early as they possibly can.”